December 9, 1998

Saving Public Retirement

With the House Republican wet-dream fantasy of a disgraced Bill Clinton shuffling back to Little Rock (or prematurely zooming off to Hollywood in Geffen's private jet) fading -- did Henry Hyde truly believe last-minute, desperate pokes at Clinton's rule-bending fundraising would make any difference? -- it may be time to start heeding what promises to be the biggest wonk-off in Washington in years: Social Security reform. Yes, it's true, substance (or, more accurately, the politics of substance) may be replacing scandal in the nation's capital. What will Chris Matthews or Geraldo Rivera do? Or the entire MSNBC network? Without Monica, we in Washington will be forced to cover the policy debates concerning Social Security and other dull- but-crucial matters. Sure, the copy of columnists will be flat as Kansas without references to presidential spurts, thong underwear, and impeachment. But let's take comfort in knowing the country itself will be better off, for when it comes down to it, what matters more to you (and your children; we can never forget the children): titilating reports of Oval Office afternoon delight or a secure and effective pension system?

In the midst of this traumatic transition to a post-Monica age, the White House this week is hosting another in a series of conferences on the future of Social Security. President Clinton still has yet to offer any plan of his own. Like any schlub who ever read a how-to guide on negotiations, Clinton knows that when one is in the middle of a contentious fight it is generally not best to go first. Republicans, who generally want to see a portion of Social Security privatized and handed over to Wall Street, have been pushing Clinton to drop a proposal on the table. Clinton, who keeps hinting he fancies a dash of privatization, will face the wrath of the core Democratic Party constituencies, the gang that has stood by him through Monicagate, if he opens that door. Last week, a flock of liberal and charitable outfits -- the AFL-CIO, the NAACP, Catholic Charities USA, NOW, the Older Women's League -- held a well-attended press conference to announce they would fight to the death any plan that would not preserve Social Security as a universal program that guaranteed monthly benefits and provided a decent and inflation-adjusted income for a recipient as long as he or she lived. They also vowed to oppose any scheme that would raise the retirement age or undermine the survivors and disability insurance portions of Social Security.

This band, led by union chief John Sweeney, Jesse Jackson, and NOW head Patricia Ireland, were speaking less to the reporters and more to 1600 Pennsylvania Avenue. They realize that Vice President Al Gore does not want to see these folks angry at the White House -- especially not if any serious primary challenges arise. Republicans, fueled by policy-speed shot out of the bowels of the Cato Institute and the Heritage Foundation twenty-four hours a day -- are eager to mount a run on the most successful social program in the nation's history (which today keeps 16 million from descending into poverty) and hand large chunks of the nation's colletive retirement fund to their dear friends in Money-Manage Land. But the GOPers are no fools. They want cover from Clinton. And the current political set-up makes it seem as if Monica never flashed the President, for again an all-too familiar situation is developing. Will Clinton attempt to cut a deal with Republicans and shoot the bird at his party and his running-mate? (Why not? He's already betrayed his other mate.) Or will he do a reasonable impression of a Democrat and fend off the would-be raiders of Social Security?

Those are the politics. The reality is -- prepare yourself -- there is no Social Security crisis. Not yet. The program can pay out for the next 30 years. Then, if conservative estimates of 1.7 percent economic growth prove true, a shortfall will occur. But the system will not be completely bankrupt. All those polls showing that thirtysomethings do not believe Social Security will be there at all for them are the results of a propaganda campaign. Under these conservative projections, benefits may have to be cut by a quarter. But this is hardly cause for sky-is-falling cries. Who knows what will happen by the year 2030? If the U.S. economy grows at the same pace it has over the past 75 years -- 3.2 percent -- the numbers are not alarming at all. The privateers are manufacturing a crisis. They're trying to trigger a run on a bank.

The possibility that Social Security could come up short when Monica Lewinsky goes through menopause should not be ignored. But modest nudges in the program -- raising the cap on income susceptible to the regresssive Social Security tax, investing the trust fund in conservative private investments, widening the pool of participants, devoting all future surpluses to Social Security -- could provide protection, if it is actually needed. An overall economic policy that spurs growth -- and does not obsess over inflation -- could do the trick on its own.

Yet the privatizers depict Social Security as on the brink of collapse and claim only Wall Street can save it. Well, if the economy is going to be so strong in the decades ahead that we can rely on Wall Street to provide our pensions, then the projected shortfall in Social Security will not likely materialize and the current system will not be imperiled. The privateers are arguing against some cold realities. A private system in which individuals would manage their own mandatory retirement funds would be far more expensive. (Social Secuirty's administrative costs are about 1 percent. Beat that, Paine Webber.) A transition to a private system would likely require significant benefit cuts. It also probably would impose greater costs on the Boomers, as they pay for the current recipients and also pay for the transition. And there will be no security. Private accounts will be susceptible to the vagaries of the market, and unlike Social Security, they will not offer inflation-proof, guaranteed pensions. Some elderly people could outlive their retirement savings. Then what? Welfare for them? Or a trip to an ice float? Or *Soylent Green*?

But the returns, think of the returns from private accounts, assert the privatizers. That will solve all problems. With every American cashing in on the market, all will be well. In a new book, Henry Aaron and Robert Reischauer, both policy-heads at the Brookings Institution, effectively take on this argument. Assume that Social Secuirty is modified so that its reserves can be invested cautiously in private assets. Such a system would deliver results better than those of a system based on individual private accounts. "Unlike Garrison Keillor's mythical Minnesota community where all the children are above average, the average private account cannot enjoy a return much different from the average return on all investments in the economy," they write. "But a privatized structure would generate higher sales, administrative, and compliance costs than would Social Security if reserves were invested in similar assets. Investment management fees could eat into the returns earned by private accounts, diminishing the balances available to support retirement pensions. As a result, the average net returns to pensions would be higher under Social Security than under direct individual investment and the pensions would be more reliable."

Sounds like a no-brainer. But some of the privateers are aghast at the notion of the government investing in private securities. Wouldn't this be government ownership of corporations? And that's...that's....that's socialism. Such arguments show that what this crowd yearns for is not a more secure and financially sound system. They want a financial free-for-all, with market ruling the nation's retirement system. This is not to endorse the Aaron- Reischauer call for collective investments in stocks and bonds. But their proposal does show that Social Security need not be turned over to fund- hedgers to preserve it.

Saving Social Security has become an apple-pie catchphrase. But it is a misnomer. It does not need saving at the moment. But for much of this year, the gut-Social Security advocates have been waging guerrila warfare to convice opinioin leaders and commoners that dire straits demand dire action. For a while, it appeared they were winning, that Washington officialdom and the punditry bought their assumptions that Social Security was a goner and privatization was a given. But hold on, free-marketeers. Last month, *Business Week* ran a piece by Peter Coy, its associate economics editor, with this headline: "Social Security: Let It Be." The article maintained the program "needs repairs, not radical surgery." After dismissing the privatization schemes for being costly, risky, and unwieldy, Coy ended with a lovely sentiment: "The beauty of Social Security is thatit represents a shared commitment of society as a whole to meet a need that isn't well met by families on thier own. The bottom line on Social Security: If it's not social, it's not security." The Washington Post ran a lead editorial two weeks ago noting that privatization was "probably" a "bad idea," scorning it as a "riverboat gamble." In last month's congressional elections, candidates who had supported privatization found themselves the recipients of scorching and effective attacks. Representative Nick Smith, a Michigan Republican, even had to disavow his own privatization scheme when his challenger gave him gruff for it.

Despite Secretary of the Treasury Robert Rubin's warnings about privatizing Social Security (and who knows Wall Stree better?), Clinton probably would like to pass legislation that would win him the title The Saviour of Social Security instead of The Grand Perjurer. Politics and facts, though, are arrayed against him. He can't "save" Social Security with privatization and, at the same time, save Al Gore. But if he chooses to rescue Social Security from those who would destroy it to save it, Clinton would be doing a service to his loyal and faithful companion and to the rest of the nation. With the same action, he can do well (politically) and do good (policy-wise). A win-win lies within his grasp -- if he can resist his own desires.

Earle's Reply

Several weeks ago, in writing about a benefit concert for the Campaign for a Landmine-Free World, I praised Steve Earle, one of the performers, for his non-rock-star-like advocacy on behalf of welfare rights and for his ardent opposition to the death penalty. In fact, Earle had recently and reluctantly traveled to Texas to witness the execution of a man with whom he had been corresponding. In a recent issue of the Rock & Rap Confidential (www.rockrap.com/rockrap), a former fan of Earle angrily lashed out at the countryish rocker. "I am throwing every Steve Earle CD that I won into the trash," Tom McAndrews wrote. "My dear friend Kelly Farquhar was murdered in Austin, Texas, in 1986 by Jonathan Nobles. Steve Earle calls Nobles his brother. Fuck that! If I murder Steve Earle's mother, will he be my brother, too?"

The newsletter afforded Earle the space to respond. "I'm truly sorry for the loss of your friend, so was Jon -- from day one -- but that won't bring her back either. Now Jon's dead and you're angry at me. Don't you see a pattern here?

"Send me a list of titles and I'l refund the money you've spent on my records over the years. I'm sorry if I disappointed you. I'm also curious as to which records of mine you could have been listening to without picking up on the fact that I'm opposed to the death penalty. Did you think I didn't mean it?

"Let's get the record straight, I oppose the death penalty for anyone, accused of any crime, under any circumstances, not because it's applied to poor people exclusively (although that's true) or because innocent people are executed (although they have been) but because I believe violence begets violence and therefore makes healing impossible. I've learned only two things in my life of any significant value: There is a god -- and I'm not him. Only God has the power of life and death. When we, as individuals or the state, circumvent that power by violence we will always be wrong. I'm truly sorry."

-- David Corn